I am surprised that so few papers interpreted the conference question: “Should economics have an ethical content” to be in relation to real world economic transactions. Instead most papers focused on what are wrong with the content of economic teaching and how it is taught.
Manuel Branco provided human rights as a broad criterion to evaluate the ethics of economic transactions. But it seems that only Alicia Puyana provided directly a “…link between economics and ethics. The economic surplus exists; the political will to a fair distribution is missing.”
In other words unfair distribution can be considered unethical. We must then conclude that capitalism is unethical because it transfers economic values on an unfair basis. This arises from exploitive power relationships that are not subjected to questioning by economists. Systemic examples are when:
1. Investors get overpaid in a way not reported by accountants (Surplus profits)
2. Property owners obtain windfall gains from unsatisfied demand of others
3. Money/credit creation (Seigniorage), especially by private banks
4. Interest collected from created credits
Each of the above examples arise because of the system of property rights created in capitalist societies cannot meet the test of being fair in the distribution of economic value.
Karl Marx promoted economic justice with the socialist credo: “From each according to his ability to each according to his needs”. However, the abilities of individuals may not represent the most satisfying activities. More importantly the credo omits the basic requirement for economic democracy to provide a universal guaranteed income for all citizens irrespective of their abilities.
For these reasons, the credo for economic justice adopted in Turnbull (1975: 2) was:
“From each according to his/her interest
To each according to her/his contribution
Provided the basic needs of all are fulfilled.”
To further economic justice the word “contribution” is used in an inclusive sense. The word is not limited to contributions to production and distribution but also includes contributions to consumer demand for goods, services and property rights. The reason is that no economic values can be created without consumer demand and so this symbiotic relationship to production or possession of assets needs to also be recognized to provide economic justice.
To achieve this objective my book describes how property rights can be designed to become dynamic, inclusive and time limited to replace the dominant system of static, exclusive and perpetual property rights. The adoption of what I now describe as “ecological” property rights provides a mechanism for distributing a universal minimum income with less taxes, welfare and government. Details are outlined in Turnbull (1975) and many other writings cited in Turnbull (2012).
The problem of investors getting over-paid arises from property rights having unlimited life that allows unlimited income from the ownership of land, buildings, firms and interest earning money. Investors never require income over an unlimited time to provide them with the incentive to invest. This is demonstrated by investments in intellectual property rights that all have limited life.
Because equity investments do not provide any contractual return of either the money invested or profits, investors will not rely on the unforeseeable future to make the decision to invest. The foreseeable future is normally not greater than ten years and the discounted present value of any cash after this time horizon becomes trivial, especially when discounted again for risk. However, accountants do not identify the investor time horizon and so cannot report any cash obtained by the investor in excess of the incentive to invest. I define any cash received that is in excess to the incentive to invest as “surplus profits”. A different name is required from other forms of economic rent that are reported by accountants.
Surplus profits are not uncommon or trivial. They can be a number of times greater than the cost of the investment (Turnbull 1973, Lewis & Turnbull 2011). Surplus profits are inconsistent with the reason for adopting a market economy to efficiently allocate resources. Surplus profits create what Penrose (1956) described as “unlimited, unknown and uncontrollable foreign liabilities” for host countries that accept foreign direct investment. It is in this way that foreign investment unnecessarily reduces domestic income.
In addition to extracting surplus profits, unlimited private ownership of urban property captures windfall gains in values created by public investment in services and amenities. The amenity of the Jubilee underground train line built at the end of the last century increased the value of property and so the rent paid of millions of London tenants. It is the tenants who create property values for the handful of owners who capture the windfall gains. The gains amounted to 13 billion pounds (Riley 2002) to illustrate the injustice of urban property rights. This unethical situation is compounded by the residents who suffered increases in the cost of rent contributing as taxpayers to the 3.5 billion pounds the government expended on building the Jubilee line. Ecological property rights would have given the residents a share of windfall gain that they created by the higher rents they were required to pay (Lewis & Turnbull 2011).
The ability of banks to create deposits when customers borrow money must be one of the biggest and so most unethical confidence tricks perpetuated upon civilization. The sovereign debt crisis would not exist today if only the government created money and credit. Eliminating sovereign debt in this way would eliminate the need for the government to raise taxes to pay borrowing costs. The financial system is illogical, counterproductive and not self-regulating. The Governor of the Bank of England observed (King 2011): “of all the many ways of organising banking, the worst is the one we have today”.
To add insult to injury, after allowing banks to create over 95% of the credit required in the economy, the government then allows banks to charge interest on money they create. Interest allows owners of money to extract from society on a compounding perpetual basis to exacerbate wealth inequality. Ethical money would possess a carrying cost as proposed by Proudhon (1840), introduced by Gesell (1919), supported Fisher (1933) and Keynes (1936) and re-introduced into Germany by Gelleri (2009).
Capitalism is unethical in many ways not considered by economists. However it is deeply felt by the “other 99%” of citizens. It is time for economist to address the problems that concern the “Occupy” movement. The adoption of ecological property rights provides an operationally and politically attractive approach (Turnbull 2012).
References:
Lewis, M, & Turnbull, S, 2011, ‘A solution in search for a home’, available at: http://communityrenewal.ca/co-op-landbanks.
Fisher, I. 1933, Stamp Scrip, Adelphi & Co. New York, available at: http://www.appropriate-economics.org/ebooks/fisher/contents.html.
Gelleri, C. 2009, ‘Chiemgauer Regiomoney: Theory and practice of a local currency’, International Journal of Community Currency Research, vol 13, pp. 61-75, available at http://www.ijccr.net/IJCCR/2009_(13)_files/IJCCRvol13(2009)pp61-75Gelleri.pdf.
Gesell, S. 1919, The Natural Economic Order, translated by Philip Pye, 2002, available at http://www.appropriate-economics.org/ebooks/neo/neo2.htm.
Keynes, J.M. 1936, The General Theory of Employment, Interest, and Money. New York: Harcourt Brace Jovanovich, 1964, available at: http://www.marxists.org/reference/subject/economics/keynes/general-theory/index.htm.
King, M. 2010, ‘Banking: From Bagehot to Basel, and Back Again’, The Second Bagehot Lecture, Buttonwood Gathering, New York City, October 25, available at http://www.bankofengland.co.uk/publications/speeches/2010/speech455.pdf.
Riley, D. 2002, Taken for a Ride, London: Centre for Land Policy Studies.
Penrose, E. 1956, ‘Foreign investment and the growth of the firm’, The Economic Journal, 66(262): 220–235, available at: http://www.jstor.org/stable/2227966.
Proudhon, P. 1840, What is Property? An Inquiry into the Principle of Right and of Government, BiblioBazaar LLC, 2007, available at: http://www.historyofideas.org/toc/modeng/public/ProProp.html.
Turnbull, S. 1973, Turnbull, S. 1973, ‘Time Limited Corporations’, Abacus: A Journal of Business and Accounting Studies, 9(1): 28─43, available at: http://onlinelibrary.wiley.com/doi/10.1111/j.1467-6281.1973.tb00173.x/abstract
Turnbull, S. 1975, Democratising the Wealth of Nations, Company Directors Association of Australia Limited: Sydney, available at: http://ssrn.com/abstract=1146062.
Turnbull, S. 2012, ‘Sustaining society with ecological capitalism’ presented to a conference on “Designing and Transforming Capitalism”, Aarhaus University, Denmark, February 9–10, available at http://ssrn.com/abstract=1954920.

In a comment on DeMartino in group I refer to Chick’s discussion of Schumacher’s Buddhist ethics (p9) and Ono’s discussion of Confucian ethics (group 3) in relation to my paper (Harrison, group 3) examining the ontological assumptions of different approaches to economics. See the post in group 1 for the full comment.

Again, I will comment on each paper in this third group, in turn, though in some cases I have little to contribute. The idea is to support this unique conference format by participating therein… – FBJ

Howard Aylesworth: I like Aylesworth’s statement that “economic theory places human activity outside of nature and nature devoid of man” though I’m not sure what “nature devoid of man” means here. The comment reminds me of Shepard’s (1982) great and pioneering book on the pathology of this separation.

I certainly like and agree this statement: “An integral component of our socio-economic development is the increasingly more destructive impact it has had upon the ecosystem of which we are a part. Our response has been to largely ignore the consequences of our actions, and to deny our responsibility for our environmental footprint until it has reached crisis proportion[s]. The ethical questions before us are how do we evaluate the world around us and what are our responsibilities for the changes we are making?” He goes on to say that: “From an ethical standpoint, civil society has lost contact with the natural world…” The most penetrating comment in the paper was, for me, this one, in the context of looking at “the impact of our actions both on ourselves and on the ecosystems that support us” where Aylesworth then asks: “Is it time for us to focus on resolving the issues which we don’t know, rather than basking in the light of what we do know?” The rest of the paper kind of goes flat for me. Aylesworth poses the question of “what is value” and how can we represent it “to make the market meet societal norms and expectations?”

I take no issue with anything here, but to say that: “These are not easy questions to answer” is neither helpful nor enlightening. Of course “moral values are embedded in economic theory” and “economics … is … a guide to action” (Indeed, that’s its whole purpose, isn’t it?) and market structure must “ensure all monetized costs are … reflected in prices” (but what about ecological losses that cannot be quantified or monetized with any accuracy?), and that all this “will require rules, regulations and oversight…” I agree that: “The next step is to develop the economic framework looking through the lens of human impact.”

Geoff Davies: I liked Davies’ paper, though I’m familiar with most of his arguments, but he puts them well and forcefully which is always refreshing. Rather than hanging mainstream economics out to dry because of the Global Financial Crisis alone, I think it should also be forcefully indicted for a refusal to change in response to this crisis. The ‘business as usual’ attitude is shocking, as Davies concludes as well.

Davies says that: “In science, the purpose of a theory is to provide guidance on the behavior of the observable world.” Well, yes. But in economics, the purpose is not just guidance on how the world works, but also to provide guidance to choice, and that is a far more important task. We never have any empirical data on our ‘opportunity costs’ since they reside in the value of what didn’t happen. The only way we can have any idea at all of the relevant tradeoffs in choice is through the guidance of theory in its construction of those unexplored options and how they might feel to wear! If our theories are flawed, we’ll never know if what we see as a ‘bad’ choice might in fact be far better. In my comments on the first group of papers, I used the example of collusion in the presence of substitutes vs. of complements (given my own belief that complementarity, not substitution, is the more fundamental and general nature of economic relations…), and discussed how – when we assume substitution to the exclusion of complementarity – we believe that, without exception, collusion will lower output and welfare, when it may actually enhance social welfare!

Davies’ comments on GDP remind me of Moses Abramovitz’s lectures on this subject at Stanford, where I did my graduate work. Mo went on at some length on how inadequate and irrelevant this measure was… As for Davies’ remark that “the mainstream discipline has exhibited an extreme lack of curiosity, ambition and imagination,” I would wholeheartedly agree. It is surprising that learning plays so small a role in mainstream models; I like Boulding’s (1966, p. 29) comment from his Richard T. Ely Lecture:

“A substantial monkey wrench is thrown into dynamic economics by the fact that the price system itself may operate as a teacher, and preferences may change in response to the price structure just as the price structure changes in response to preferences. … The epistemological theory of decision-making is, of course, pretty empty unless we can specify ways in which the inputs of the past determine the present images of the future. Unfortunately, the observations of economists on this question are for the most part simple-minded to the point of embarrassment.”

I particularly liked Davies’ introduction to complex systems theory, with which we heterodox economists should be more familiar than I fear we are. I especially appreciated the comment that: “Complex systems … are not just out of equilibrium, they are always far from equilibrium.” I’m reminded of Wolfgang Koehler’s (1938, p. 61) claim that “an equilibrium theory of organic regulation” is “entirely misleading”:

“To express the main argument against such a theory quite briefly: neither is the standard state of an organism a state of equilibrium in the common sense of the word, nor do organic processes in their totality generally tend to approach such an equilibrium.”

In general, open complex systems cannot be analyzed with equilibrium models; even the dynamic concept of homeostasis is not really adequate to analyze such phenomena. Bertalanffy (1968, pp. 210-11) said:

“Generally, the homeostasis scheme is not applicable (1) to dynamic regulations … taking place within a system functioning as a whole (…); (2) to spontaneous activities; (3) to processes whose goal is not reduction but…building up of tensions; and (4) to processes of growth, development, creation, and the like. We may also say that homeostasis is inappropriate as an explanatory principle for those human activities which are nonutilitarian – i.e., not serving the primary needs of self-preservation and survival and their secondary derivatives, as is the case with many cultural manifestations. … It should not be forgotten that Cannon (1932, p. 323), eminent physiologist and thinker that he was, …explicitly emphasized the ‘priceless unessentials’ beyond homeostasis.”

A much more detailed discussion of these matters can be found in Jennings (1999, III.C.5-6, pp. 66-79)…

In sum, I like Davies’ identification of “three fundamental conclusions” that follow from the recognition that economies are complex systems: first, they can exist in many states; second, that invites a wide range for “human cultural diversity” (Bravo!); and third, if economies are like living systems, then there is no reason these cannot be made compatible! I would only want to add one additional observation, and that is that both ecology and economy are settings in which complementary relations predominate, which in turn demand cooperative systems and in which competitive systems fail. This we need to understand better…

Davies’ paper also observes, at the start of his conclusion (hearkening back to his opening point), that: “Mainstream economics through the neoliberal era has retarded growth.” I wrote a paper some years ago posing the question “Does Competition Advance or Retard Economic Development?” (Jennings 2011a) that made the point, among others, that development shifts the composition of output and demand away from material goods toward intangibles, and therefore away from substitution toward complementarity. With complementary goods, competition stifles output and social welfare, e.g., in a ‘knowledge society.’

Gerald Gutenschwager: I really liked this very interesting paper. Even just from the abstract, I knew this paper was going to be good: “Rather than denying involvement, economists will have to accept moral responsibility for defending theories and policies that support a predatory system based on greed and fear, and even more important in the long run, a system that ignores the ecological effects of its thoughts and actions. This should … help foster a cooperative, holistic framework…” I was eager to read the rest of it!

I liked Gutenschwager’s distinctions: they offered a nice clarity to a cogent track of argument. He starts by distinguishing social from natural science, and how orthodoxy is “bound to moral indifference” and a notion of ‘isolated individuals’ (which last is a breathtaking fiction from either an anthropological or sociological vantage). As he puts it, human beings “are structures of meaning and behavior … [which are] always a product of consciousness and intention…” I liked this line: “People have been persuaded and goaded into acting like Homo Economicus, and caveat emptor to those who don’t conform.” This so aptly describes so many rude and antisocial behaviors we see around us every day, e.g., Republican utterances!

I could go on quoting delicious sentences; what I like about the style of this paper is its forceful statement of ‘inconvenient truths’ that are reassuring us that we are on the right track were we to be in any doubt… I like his statement that “moral discussions are quite ‘natural’ to human beings” and that “social reality is constructed not only intellectually, but also emotionally and morally.” And that: “There are no natural laws governing this process.” I love his identification of the three moral values “imposed upon society by orthodox economics… Orthodox economics operates within an iron triangle bounded by greed, cunning and fear; this is the extent of its social and moral world.” Gee, they didn’t teach this in graduate school!

And then, just think: “Imagine if economics had spent millions of person-hours promoting and glorifying the theoretical goal of cooperation over the past century, with competition and its accompanying violence a secondary and, perhaps in time, unnecessary complement.” Had economists seen through the fallacies of (what I call) ‘The Hicksian Getaway’ and ‘The Hirshleifer Rescue’ and understood that diminishing returns was never constructed on anything more than pure assertion for long-run analysis (cf. Jennings 2011b,c), then we would also have found the proper route to concluding that complementarity – not substitution – is the general case of human interdependence, especially when ‘horizon effects’ are included in the analysis. And that would have meant a decisive case for the efficiency of cooperation.

The paper goes on to note that “the world is not a friendly place to live in,” that “a grave, if not species-threatening environmental crisis … has been … largely inspired by economic theory.” Gutenschwager relates this to a pervading sense of insecurity and fear radiating through our society, observing that “if there is any value dilemma that is the most damaging to humans in the developed capitalist countries, it must surely be insecurity, or in the more extreme case, fear. … Insecurity and fear lead ‘nicely’ into aggressiveness and greed. They also, however, inhibit emotional development and the attainment of emotional maturity, or emotional intelligence…” Exactly, and how refreshing to hear it said right out like this! This statement so well resonates with my horizonal argument that competition is shortening horizons and thus keeping us stupid and immature (because learning is a complementary process, etc.). Nice… And part of that argument is based on Maslow’s work, which this paper goes on to discuss. Well done! The nicest thing about this interesting and penetrating paper is that Gutenschwager clearly understands why our theories matter, as they shape our individual and social behavior and cultures in all sorts of ways.

Karey Harrison: I found Harrison’s paper a valuable exegesis of different ethical approaches, and I very much liked the identification of ‘homo economicus’ as a psychopath (though I would prefer the term ‘sociopath’ here). Clearly ignoring the “intrinsic connections between people” is crazy and unwarranted. This sentence I liked very much: “The atomistic conception of self creates a dualistic opposition between ‘altruism’ and ‘self-interest’. … Benefiting self and benefiting another are created as opposites by this atomistic conception of self.” Thank you! And this “dualistic opposition” is so often taken for granted in our discipline: it is the ultimate implication of substitution assumptions as applied to human relationships, which should be duly contrasted with the implications of complementarity, namely, that ‘a rising tide lifts all boats’ such that your wants and needs and mine are positively (rather than negatively) correlated. If so, then I rejoice in your happiness and mourn with you in your grief. In this situation – as I said above, “just think” of what an economics of cooperation might have produced – it is directly in my own interests to reach out and help or benefit you, because ‘what goes around, comes around’ if we gain and lose together. Reciprocity rules the day, and we each (individually) benefit (directly) from everyone else’s well-being.

Some (most?) may call me naïve or ingenuous in this cold harsh world of brazenly unbounded selfishness but read what Douglas McGregor (1960, pp. 310-11), an organizational management expert, had to say:

“The deprivation of needs has behavioral consequences. … The man whose needs for safety, association, independence or status are thwarted is sick, just as surely as he who has rickets. We will be mistaken if we attribute … passivity, or … hostility, or … refusal to accept responsibility to … inherent ‘human nature.’ These forms of behavior are symptoms of illness – of deprivation of … social and egoistic needs.”

McGregor went on to explore the connection to selfish consumerism and materialism in modern cultures:

“…the fact that management has provided for these physiological and safety needs has shifted the motivational emphasis to the social and egoistic needs. Unless there are opportunities at work to satisfy these higher-level needs, people will be deprived; and their behavior will reflect this deprivation. … People will make insistent demands for more money under these conditions. It becomes more important than ever to buy the material goods and services which can provide limited satisfaction of the thwarted needs. Although money has only limited value in satisfying many higher-level needs, it can become the focus of interest if it is the only means available.”

Chris Argyris (1960, pp. 262-63, 268-69) said that conventional forms of hierarchical organization treat their members like children, that mature people in these settings show symptoms of ill health, including “frustration, failure, short time perspective and conflict.” He voiced concern about organizational fragmentation of effort due to authoritarian structures thus: “The nature of the formal principles of organization causes the subordinates, at any given level, to experience competition, rivalry, intersubordinate hostility and to develop a focus toward the parts rather than the whole.” Is this not a (somewhat disturbing) characterization of our current culture, in all its myopic concerns and selfishness?

Here’s the point: competition stifles the output (or the flourishing) of complementary goods. Learning, love, fellowship, caring, ecological systems, families, etc. etc. etc., are all complementary activities and processes. These realms are being (quite predictably) starved by our competitive culture. Far from being an ideal system of social organization, competition is taking us down the tubes in very important realms of concern. And if Kaldor (1972, 1975) is right, then complementarity is the general case for all long-run material goods as well (cf. also Jennings 2011b,c). If Maslovian (Maslow 1954, 1968) higher-order needs are increasingly intangible, then they are complementary too, and competition is stifling them and thereby keeping us immature and frustrated in our behavior, which is why our culture exhibits symptoms of a widespread and deeply pathological higher-order need deprivation. Read those quotes from McGregor and Argyris again, in this much broader context. This is a story about ‘horizon effects’ and their origins.

The impact of myopia on social and ecological health is painfully obvious, showing how orthodoxy – in its substitution assumptions – has led us severely astray at great cost. Traditional theory in economics studies the interaction of factors, products, agents and firms in industries (as substitutes) at the expense of any real attention to complementarity: conflict dominates concerts of interest in neoclassical theory. As a result, we reap what we sow. Senge (1990, p. 274, quoting Badaracco and Ellsworth 1989) notes the “self-fulfilling” character of the belief “that people are motivated by self-interest and by … power and wealth”:

“If people are assumed to be motivated only by self-interest, then an organization automatically develops a highly political style, with the result that people must continually look out for their self-interest in order to survive. An alternative assumption is that, over and above self-interest, people truly want to be part of something larger than themselves. … When organizations foster shared visions, they draw forth this broader commitment and concern.”

OK. I needed that rant. Sorry. (Not really…) But these (so obvious) observations (at least, once you see them as such) are so hard to convey to (especially orthodox) economists that I’m always reminded of one other pithy remark by McGregor (1960, p. 317), that: “Fish discover water last.” That quote is a keeper…

I also like Harrison’s discussion of human beings’ “basic needs that must be met for their flourishing” and the broadening of our (private and social) planning horizons should fit that bill very well as a basis for “compar[ing] social arrangements” on how well they meet this need. Harrison talks about love without a mention of complementarity here (the alternative form of interdependence inverse to substitution): “Love creates an intrinsic connection between self and others, thus turning the opposition between ‘altruism’ and ‘self-interest’ into a false dichotomy.” Yes, exactly! There is no ‘conflict of interest’ here; rather, what we find here is the ‘concert of interest’ that is rightly expressed by the term ‘complementarity’ in economics. As Harrison correctly puts it: “When we care for someone, we care about their wellbeing. If something good happens to someone we care about, we feel happy because they are happy. If something bad, we feel sad because they are sad. Our wellbeing in part depends on the loved one’s wellbeing.” My question is: why don’t we feel that way about everyone? What is stopping us? Hugging trees is less threatening, since they might not reject us, but what are we afraid of? How did we come by this fear? (Rhetorical questions.)

Harrison: “The ontological resources provided by the atomistic account of self do not allow for relations of mutual interdependence between people and between people and the environment. Mechanistic atomism has an ontological commitment to treating interests and desires as the same kind of thing as the physical properties of mechanical objects – that is, such properties are fixed and have an objective existence independent of the properties (interests) of other objects (persons). It has to describe actions done out of love in terms of ‘self-denial’ and ‘altruism’. An atomistic conception of the person can be contrasted with a model that emphasizes the connections and interdependencies between people.”

The orthodox frame of reference serves to trivialize social and personal relationships for methodological ‘convenience’? I think of Michael Polanyi’s (1958, pp. 26-27) view that the “personal coefficient” of knowledge not only gives our “explicit statements … meaning and conviction” but also “entails a decisive change in our ideal of knowledge.” The “participation of the knower” is not to be seen “as a flaw” but rather “as the true guide and master of our cognitive powers.” In sum, Polanyi argued that: “The ideal of a knowledge embodied in strictly impersonal statements now appears self-contradictory, meaningless, a fit subject for ridicule. We must learn to accept as our ideal a knowledge that is manifestly personal.” But we economists still labor under the spell of Laplace’s dream of impersonal knowledge and objectivity in a humanless social science. Michael Polanyi (1958, pp. 139-42) put it thus:

“The ideal of strictly objective knowledge, paradigmatically formulated by Laplace, continues to sustain a universal tendency to enhance the observational accuracy and systematic precision of science, at the expense of its bearing on its subject matter. This issue [is part of] … a wider intellectual disorder: namely the menace to all cultural values, including those of science, by an acceptance of a conception of man derived from a Laplacean ideal of knowledge and by the conduct of human affairs in the light of such a conception.”

“From time indefinite, the natural sciences have cherished a positivist epistemology according to which scientific knowledge covers only those phenomena that go on irrespective of whether they are observed or not. Objectivity … requires then that a proper scientific description should not include man in any capacity whatsoever. This is how some came to hold that even man’s thinking is not a phenomenon. True, the ideal of a man-less science is gradually losing ground even in physics… However, for a science of man to exclude altogether man from the picture is a patent incongruity. Nevertheless, standard economics takes special pride in operating with a man-less picture. …”

I really liked Harrison’s discussion of the important Aristotelian difference between doing something for ‘pleasure’ and doing something ‘for its own sake.’ Wow. “Doing something for its own sake … both requires and develops the virtues of justice, honesty, and courage. … To the extent we value the activity for its own sake, cheating is self-defeating.” I’ve not thought of it in quite that way. Thanks!!! It’s so obvious once pointed out, too. “Fish discover water last?” If I’m doing something for its own sake, then if I cheat, I cheat myself. Of course! Very nice. And this is part of a passion for learning, in a horizonal economic world, since learning cannot be ‘faked’ if you’re doing it for yourself and your future. [Do you mean I have to impose all the penalties when I play golf by myself for exercise? (I won’t promise that!)] “The sort of pleasure that supervenes upon an activity pursued for its own sake can’t be bought.” Amen.

[I’m getting pretty long-winded here… Is anyone still reading? I hope this is interesting, at least to some.]

Arun Mukhopadhyay: I’m glad to read economists who understand that: “The world is fast heading towards a ‘Perfect Storm’ of an interconnected financial, ecological and social crisis.” I’m terrified of it… The story of ‘horizon effects’ – that competition is creating and reinforcing a dangerously myopic culture, in the presence of increasingly complex social and economic interdependencies that in turn call for longer and broader planning horizons (or at least some degree of intelligence), most especially in our political leadership – suggests that when this ‘Perfect Storm’ breaks on us, we will likely address it with violence rather than with reasoned discussion about the need to adapt to these stresses in a cooperative manner (reinforcing community bonds rather than casting them asunder). Substitution? Or complementarity?

As Mukhopadhyay says: “The project to divert Economics from … the broader socio-ecological context to a mere vocational training equipped with quantitative tools” is well advanced. Recall Michael Polanyi! I like his comments on “growth fetishism” and its disastrous ecological impact and the rest of the paper.

Robert Nelson: I liked this paper a lot. It really illuminates some important distinctions between the core views of economists and ecologists (Nelson calls them “environmentalists” but that gets us too close to the confusion between ‘ecological economics’ and ‘environmental economics’ that have vastly different approaches to the way economics should be done). Nelson sees both sets of core beliefs as “religious” in their basic character, and contrasts them very nicely. He also offers a valuable historical perspective on economists’ “enthusiasm for economic progress” which peaked at the end of the 19th century and abated after “the carnage of World War I” though it is still somewhat true that “economists have been perhaps the leading holdouts for progress.” Nelson reviews the “strong unstated value assumptions” underlying economists’ core beliefs, centered on consumption and possessions as the key to happiness and wellbeing.

The “environmental religion” emerged in part “as a backlash against economic religion” and its belief in “progress” without any attention to the full costs thereof, including “psychic costs.” This “religion” is different because it “celebrate[s] less consumption” rather than the ‘more is better’ view of economists. Where economists see nature as a resource, ecologists see it as needing protection (from exploitation). “The cathedrals of economic religion” are man-made constructions “symboliz[ing] the new human power to control nature for human betterment,” whereas: “For environmentalism, in contrast, the new cathedrals are wilderness areas, symbolizing the exact opposite set of values.” Instead of Christian ‘good’ and ‘evil’, economists have ‘efficient’ and ‘inefficient’, while ecologists have ‘natural’ and ‘unnatural’ as their ethical lodestones. Nelson hopes that: “If both were generally recognized as competing secular religions, perhaps the reduced influence of economics and of environmentalism would roughly cancel out.” He also suggests that we might “be entering into a new era of genuine full religious pluralism.” One might hope…

Susumu Ono: Ono’s paper offers a rather different, Oriental (Japanese and Confucian) view of ethics and economics. He suggests “economists … should be servants of ethics” where “the ethics of Utilitarianism … makes people think much more about profit, and much less about justice, and … they will care much more for money than for character.” This Confucian frame elevates the role and status of government over that of free markets, where leaders need to be virtuous, seeking to improve social welfare for all…

Ono includes a nice historical perspective on Western economists and what they’ve said on these subjects in the early sections of his paper, contrasting the Confucian and utilitarian goals of virtue and pleasure, with regard to the development of character vs. a selfish pursuit of profit. As Ono explains, bad values yield bad theories and bad theories generate bad policies, especially in economics. “Value judgment is a manifestation of human nature coming from a great depth beyond science.” I read this as saying: ‘Culture rules,’ and everything else will follow. Ono talks about positivism as a “backward-looking argument” that “lacks a critical spirit” and I think about McCloskey’s (1994) ‘take no prisoners’ critique of positivism…

She opens her book with thoughts on her youthful enthusiasm with positivism, as “the philosophy of the hard-nosed against the soft-headed.” (p. 3) “…I do not regard positivism as a useless or silly movement. In its day it did good. … But its day has passed; its values need scrutiny; it has become an oppressive rather than a liberating force in economics.” (p. 5) Her motive for being attracted to positivism was, first, to be on the hard cutting edge of science and, next, “hero-worship,” along with “its univocal certitude” and its simple “efficiency” (pp. 8-12):

“…Positivism saved effort. Positivism was economical in ways attractive to the young and impatient. … Most … facts … could be ignored… No tacit knowledge was necessary, no sense of the landscape, no feel for the story. … The simplicity of positivism has great appeal to the young. To [be harsh]…, positivism is a 3”x5”-card philosophy of science, which the young can read in a minute and understand in a day. … [and] apply … to everything… Positivism commends intellectual narrowness … substituting intellectual bumper stickers for thought. … ‘Testing hypotheses,’ after all, is easier than thinking… In some brains the result of economic positivism was and is a first approximation to an intellectual lobotomy…”

She goes on, very cleverly, at far greater length, but you get the overall drift… In general, McCloskey argues that an “economics without positivism would be more, not less, rigorous and scientific, because it would face up to more arguments” and “would become less rigidly childish in its method.” (pp. 23-24) The approach involves an intellectual “specialization without trade [which] is a few bricks short of a load.” Also, “learning [should entail] less sneering” with regard to “Methodological dogma.” (pp. 75-76)

Ono offers another limitation of positivism, that: “The earth in both time and space has infinite facts. It is absolutely impossible to know infinite facts.” This, of course, is Friedman’s (1953, pp. 32-33) argument against “realistic assumptions” on the basis of a definition of ‘realism’ as ‘descriptive completeness,’ which simply throws the ‘essential’ baby out with the ‘irrelevant’ bathwater (cf. Jennings 1968, pp. 9-10):

“The most basic problem … is definitional. Friedman maintains that an assumption, qua assumption, must necessarily be ‘unrealistic’ as it ignores some aspects of an event. However, by this use of the term he bypasses the very distinction upon which the entire issue of ‘realism’ is based. By his own classificatory system, he fails to differentiate between two crucially dissimilar things: he treats the isolation of essential characteristics most relevant to a situation as equivalent to the fabrication of hypothetical and non-factual ‘characteristics,’ in the building of an economic theory. … By treating clearly non-ontological postulates on the same footing with statements that isolate essential facts, he bestows upon the former an undeserved cloak of legitimacy.”

Eight years later, in an aborted dissertation proposal, I said it more clearly (Jennings 1976, pp. 5, 23-24):

“The most fundamental flaw in Friedman’s attack on ‘methodological orthodoxy’ is the intellectual ‘package deal’ in his definition of realism. In essence he presents us with a straw man by identifying ‘realism’ with ‘descriptive completeness,’ and thus adroitly side-steps the critical distinction between postulates which isolate the essential characteristics of a situation and theoretical constructs which have no ontological basis whatsoever. Using this sleight-of-mind formulation, Friedman extends his argument well beyond the question of realistic assumptions, by attacking explanatory value as a means of theoretical verification. The only standard by which any of the ‘infinite number’ of hypotheses that are ‘consistent with the available evidence’ (Friedman 1953, p. 9) at any given time can be evaluated, he argues, is an appropriately ordained ‘blindfold’ test of that theory’s predictive power.”

“Many of Friedman’s supposed dilemmas … seem to be direct offshoots of his syllogistic concept of ‘analytical plausibility.’ Precisely what he lacks – and needs – is a method by which he can bring his theory to ‘reality’ for a comparison of results… Without such procedural ‘niceties,’ he has no standard to guide him in evaluating the various explanations with which he is presented by the method that he adopts. Thus his enigma regarding the ‘infinite number’ of [‘possible’] hypotheses which are all ‘consistent with the available evidence’ reveals more about the consignment of observations deemed as ‘evidentiary,’ and his means of gauging ‘consistency,’ than it informs of an actual problem in theoretical evaluation. … He fancies his difficulty to be one of applying theoretical hypotheses within different and perhaps somewhat arbitrary contexts by ‘groping’ for the one that ‘fits’ the best. What he fails to realize is that the very reason for his amaurosis is that he has blindfolded himself to the most fundamental principles of scientific procedure, in order to justify the elegant tools of his own conception. He wrongly posits his ‘infinity of hypotheses’ problem as a common scientific dilemma, without recognizing it as in actuality a manifestly philosophical reflection of an admittedly perplexing epistemological oversight.”

Ono’s closing comment in the paragraph from which I quoted him above resurrected another reference to a remark by Michael Polanyi. Ono says: “That is why positivism without logic lets researchers push meaningless and endless subdivision of subdivision and subdivision of its subdivision again in academic specialty.” Though Ono is speaking of the proliferation of academic subspecialties, what he said reminded me of a quip Polanyi (1958, p. 186) made about the endlessly infinite dementia of mathematical logics:

“No sharp distinction can be drawn between mathematical theories which apply to external objects, and mathematical inventions which are interesting only in themselves… Not being primarily concerned with foretelling what is going to happen, or with contriving what anyone wished to happen, but merely with understanding exactly how alternative aspects of a certain set of conceptions are logically connected, mathematics can extend its subject matter indefinitely by conceiving new problems of this sort, without any reference to experience. … It now appears that the logical structure of this process is not quite that of inventing a game, but rather that of the continued invention of a game in the very course of playing the game.”

Ono remarks that: “I am envisaging an integrating principle” of a transdisciplinary character; I would submit that the concept of ‘planning horizons’ offers just such a principle, and it rips right through economics structuring concepts into radically different outcomes, such as a strong case for the efficiency of cooperation and not competition, by establishing complementarity as a more general form of economic connection than substitution, in terms of both static and horizonal interdependence. The basic structure of the relation of time-horizons (or run length) to price has a long history, but it can be summarized thus. The longer the planning horizon – due to internal factors (such as self-confidence, knowledge, effort and energy) and to external factors (such as stability of the decision environment, trust in others’ reliability, and a lack of unexpected disruptions) – the lower will be the marginal costs (M* > 0) and the markup (E* > 1), where P* = M* • E* applies to all market forms. Perhaps Margolis (1960, pp. 531-32) said it the best; his statement is one in a long debate about time in relation to cost (Jennings 2011a, fn8 on pp. 7-8):

“The greater the uncertainty … the shorter will be the planning horizon and the greater will be the … costs… The implications … are that the greater the ignorance of the market the higher will be the estimate of the costs and the more inelastic the estimate of demand.”

What is essentially being done here is to place static pricing analyses into related ‘horizonal families’ with a horizonal axis orthogonal to our price-quantity axes, where ‘horizon effects’ (horizonal shifts) will alter the slopes and positions of static curves in predictable ways as an agent’s horizon extends or retracts in response to internal or external changes. Since horizon effects are interpersonally contagious, private changes in planning horizons radiate outward with social effects, so private and social horizon effects from any given stimulus tend to be in the same (ordinal) direction. If so, then as horizons extend, there is a very general implication for the impact of planning horizons on complex interdependence, especially in network contexts: longer planning horizons shift the balance of interdependence away from substitution and in favor of complementarity (for many different reasons). If so, then our competitive institutions are holding us back from maturation and development, since competition stifles complements while fostering substitutes. To encourage these developmental processes, our institutions must shift toward cooperation.

Well, I’ve strayed rather far from Ono’s paper, for which I offer apologies (if needed). But perhaps not so far from him, after all… The “spirit” that Ono is calling for could be seen as a part of what I would mean by a process of ‘horizonal lengthening’ (or ‘broadening’ to be precise, since longer time-horizons are reflective of a better causal understanding in all dimensions). “Leaders with good values and morals” such as Ono calls for will be those with broader perspectives and larger visions of social welfare, rather than just trying to enrich themselves or moved by narrower short-term goals. Maybe we’re on the same page.

Alicia Mutis: This is also a very nice paper. I liked the way it starts: “[T]he economic discipline and … economic policies … both have distanced themselves from the search for collective wellbeing…, treating equality and efficiency as antagonists.” (On this, cf. Jennings 2005.) She notes “two facts that have defined the evolution of economics”: first, that “humans are stripped of their social nature, dehumanized, reduced to their darkest side,” and second, “the pretence that economics is a Science…” With these facts, “economic policy lost its north…” I love this remark: “[Economic] development is the spiritual, political and social improvement of the entire society.” She attributes it to Keynes, Smith and Ricardo. Can you imagine what economics could have become, guided by this sort of vision? How did we ever lose that? (I would trace it directly to ‘The Hicksian Getaway’ in 1939 which was sadly reinforced 23 years later by ‘The Hirshleifer Rescue’ in 1962, as reviewed in Jennings 2011b; as a result, there was a 40 year flip in the ‘orthodox’ view of decreasing returns from Pigou’s 1928 blanket dismissal to Alchian’s 1968 claim it was a “general and universally valid law” against which Kaldor responded forcefully in the early 1970s.)

I don’t like Keynes’ distinction of “absolute” from “relative” needs, with the latter involving envy for others, but I find the explanation thereof a bit confusing (p. 3). If “cultivation of the spirit” involves a reduced stress on “relative needs” such as envy, then I’m OK with that. I think that’s what Mutis is saying opaquely, that “the cultivation of the spirit” is possible, “as long as there is a cultural transformation[] which rewards creative leisure and scales down the satisfaction of the relative needs.” As for “the political will for social justice” which “has been fading” in the face of “the triumph of … individual rights,” I wonder how much of this focus on ‘more stuff’ as a measure of welfare reflects McGregor’s comments above on the symptoms of higher-order need deprivation due to competition’s stifling of complements (see my comments above on Harrison’s paper). As Mutis says so nicely, “The orthodox economy … got rid of the richness of the real world…” by substituting “precision” for “relevance” and making economics into “a branch of applied mathematics” according to an AEA Commission Report in September 1991… As Mutis puts it: “What has been scarce is a professional wisdom informed by a rich knowledge of psychology, institutional structures, historical precedents and history of the subject.” A big Amen to that!

And, tragically, “essential changes in ethics have gained ground. There is a greater tolerance towards levels of poverty and inequality which were previously rejected as absolutely and morally unacceptable.”

A summary point, perhaps: What comes out of this whole discussion, for me, is a sense of the utter bankruptcy of what we call ‘orthodox’ economics. I’m very impressed with the quality of thought in the papers submitted for this conference. It is very unusual for me to find myself so energized by such a high percentage of the papers I’ve read for these sessions. If this is where the WEA is going, I’m heartened to think that we may have a forum for real change at long last. Bravo and congratulations to all of you(us)!

Koehler, Wolfgang 1938, “Properties of Open Systems” excerpted from ch. 8 of his The Place of Values in the World of Fact (New York: Liveright, 1938), pp. 314-28, quoted from ch. 3 of F. E. Emery, ed., Systems Thinking (Baltimore: Penguin, 1969).

My discipline, as far as I will accept one, is organization theory. We have similar problems. Our basic textbooks contain highly managerialist versions of pop-psychology that compare with the university economics I have had to teach. I doubt any of this material equips anyone with work skills other than allowing them into the lists as ‘graduate’. I tended to teach more along the lines of Mukhopadhyay’s paper, encouraging students to question the system. It is easy to agree entirely with this paper, yet the question of how we can get at the practicalities of ethical behaviour remain largely untouched.

The so-called ‘basics’ of undergraduate teaching are, in fact, very substantially removed from anything basic about being in the workforce and getting some kind of salary to make one’s way in the world. The universities I’ve worked in across the world were hardly examples of competitive good value. Our statements about the value we offered were never based on what our own researchers were finding but rather glorified lies on employment prospects and job quality. Many colleagues seemed restricted to basic text themselves in the cycle Tom Walker’s ‘Crisis, Credit and Credulity: the incredible circulation of a counterfeit idea’ suggests. It is hard to see how we can be ethical if we teach what we know to be mistaken.

The practical ethics of the world from which we derive economics and other social theory is akin to that described by Yeo (2000) – dirty hands in a dirty world – the magnificent rationalisation tool described by Machiavelli. Virtue ethics can be traced to text produced in the Greek slave economy. One can ask if it is ethical to teach our students Critical Theory, critical psychology or even personal honesty when they are expected to become cogs in the wheel of a real world of Machiavellian intrigue and the obscene ‘salaries’ of the banks.

Yeo, Michael, 2000, “Dirty Hands in Politics: On the One Hand, and On the Other”, in Paul Rynard and David P. Shugarman (eds.), Cruelty and Deception: The Controversy over Dirty Hands in Politics, Peterborough, Ontario: Broadview Press; Australia: Pluto Press, pp. 157–173.